This year will certainly be known for tech reasserting its dominance on Wall Street. However, the powerful snapback rally of 2023 has broadened out over the past seven weeks or so to include companies whose fortunes are more closely tied to the U.S. economy. With the Federal Reserve’s interest rate hikes on pause and three rate hikes expected next year, cyclical stocks have come back into favor. Against that backdrop going into 2024, I like our industrial-focused companies very much and talked about why during the CNBC Investing Club’s December Monthly Meeting on Tuesday. CAT YTD mountain Caterpillar YTD Caterpillar shares have been on a wild ride this year — trending higher initially and then sinking into late spring; ripping higher to records and hitting another rough patch. Over the past month, the stock has now soared nearly 20%, setting new all-time highs Wednesday. Caterpillar has yet to quantify the impact of the influx of government spending to overhaul the nation’s crumbling infrastructure. However, on the heavy machinery giant’s third-quarter earnings call, management said they have started to see a positive impact from infrastructure investments. They expect even more benefits in 2024. DD YTD mountain DuPont YTD DuPont is levered to housing, which we all feel better about after last Wednesday’s Fed meeting. But more importantly, it’s levered to technology, particularly cellphone handsets. That cycle has been down for a long time now. But last quarter, DuPont CEO Ed Breen told us he had seen green shoots in that business and I think Breen is someone who has never blown smoke about these things. That makes the story perhaps the cheapest of the industrials, I know, just a company that’s been left behind for no reason other than people do not understand its portfolio. With shares around $73 each, the stock is way too cheap, kept down by a guide down on small proportions of the business. ETN YTD mountain Eaton YTD Since our November meeting, we swapped out Emerson Electric for Eaton because we didn’t trust Emerson after a one-two punch of a hostile takeover and a not-so-hot quarter. We like the part of Emerson that was related to the power grid, though. That made Eaton, which is all over the grid and is instrumental in replacing fossil fuels, the logical stock to buy. When you have a thesis like the less-than-gradual departure of fossil fuels, you want a champion and Eaton is that champion. It just never comes in. We don’t like to violate our cost basis. It’s been almost always wrong — the almost being the one very good buy of Broadcom two quarters ago. We may have to pay up soon to complete the Eaton position because I think that Inflation Reduction Act spending coming in 2024 might never let this stock come down to the levels where we bought our initial position. It may be a logical place to buy if we catch a sell-off in January. HON YTD mountain Honeywell YTD Honeywell recently bought a terrific industrial security business from Carrier for $4.95 billion. While it may seem like a lot of money, Carrier needed to sell this property to close on a heat pump business acquisition, which makes me think that Honeywell got a very good price. That’s something people didn’t understand at first but now looks like a given. Did Honeywell need to do the deal? Honeywell has boatloads of money to put to work and new CEO Vimal Kapur wants to make his mark early. No one ever had too much safety and too much security and Honeywell is playing into those trends. Meanwhile, its aerospace business is very strong. Its climate and controls business should do better as commercial construction does better with lower interest rates. Do not forget that 40% of our energy is spent heating buildings and the best solutions for cutting that price belong to Honeywell. I expect other buys and dispositions by Kapur — including, possibly, a lucrative chemicals business, a long-term legacy division, that just does not really fit into what I see as the new Honeywell. LIN YTD mountain Linde YTD It drove me crazy to see the stock of Linde bid up huge recently on speculation it might be added to the Nasdaq 100 only to see that coveted position go to Take-Two Interactive . Linde shares, in turn, retrenched. We’re still dealing with the unfortunate hot money that comes with that kind of knuckleheaded gamesmanship. If we weren’t, I believe that this stock would already be about where it was before the spurt. How about the business? Linde’s an amazing company. Most industrial-focused companies can’t grow in bad times and in good times. They say they can, but they don’t. Linde’s not like most. Its gases are used for so many different staples like wine and carbonated drinks. They’re so important to health care and necessities for carbon capture. Linde and Exxon are working on the biggest carbon capture project in the world, and I don’t think that any other company could be Exxon’s partner. I’m not even bothering to include hydrogen which, one day, will become a mainstream fuel for long-haul trucks. It’s currently used mostly for forklifts. We have raised our price targets many times. We will no doubt have to do so again soon. SWK YTD mountain Stanley Black & Decker YTD We know we took on a tough stock when we went for Stanley Black & Decker in the midst of a tightening cycle. It had missed so many quarters. It had so many logistical issues. But it never lost its marque brands — the do-it-yourself Stanley and Black & Decker hand tools and the professional grade DeWalt tools. We needed something though that could be good for repairs and remodeling for when the Fed was done tightening and we have found it. I am conscious that SWK got downgraded last week by still one more naysayer. It’s about as hated as they come in the S & P 500 . Only three analysts rate it a buy. But last quarter was pretty good and I think this one will be the beginning of a long line of good quarters that can take this stock back to where it traded in the Covid pandemic — double the current price. (Jim Cramer’s Charitable Trust is long CAT, DD, ETN, HON, LIN, SWK. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. 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Eaton Corporation signage at the NYSE
Source: NYSE
This year will certainly be known for tech reasserting its dominance on Wall Street. However, the powerful snapback rally of 2023 has broadened out over the past seven weeks or so to include companies whose fortunes are more closely tied to the U.S. economy. With the Federal Reserve’s interest rate hikes on pause and three rate hikes expected next year, cyclical stocks have come back into favor.
Against that backdrop going into 2024, I like our industrial-focused companies very much and talked about why during the CNBC Investing Club’s December Monthly Meeting on Tuesday.
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